Dow Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures, while the Bitcoin price tumbled. The stock market rally had another strong week, with the Dow Jones, S&P 500 index and Nasdaq 100 all hitting record highs.
The stock market rally is now in what IBD’s Market School deems a Power Trend, meeting all the criteria. The Nasdaq composite is above the 50-day moving average and has held above the 21-day exponential moving average for 10 straight days. The 50-day line is in an uptrend and the 21-day line has now been above the 50-day for five straight days. A Power Trend is another signal that the current stock market rally, is in a strong uptrend.
But there are some signs that the market rally is getting too extended, with investors getting too bullish.
Sea Limited (SE), Square (SQ), Snap (SNAP), 10X Genomics (TXG) and Netflix (NFLX) have newly formed handles with buy points. Apple (AAPL), Amazon.com (AMZN) and Tesla (TSLA) are working on possible handles.
Keep in mind that Snap and Netflix earnings are on tap this coming week, while Apple stock, Amazon and Tesla are due the following week.
Investors shouldn’t take these stocks and build a portfolio out of them, even if they all break out. Highly valued growth stocks have been laggards in the current market rally. Concentrating in any one sector or investing theme could leave investors exposed to a sell-off. A good example was Wednesday’s reversal in many story stocks, including Square, Snap, TXG and Tesla stock.
Focusing on one area could mean missing out on gains in other sectors, such as steel, housing retailers and financials, amid an ever-rotating stock market rally. Still, having a couple of these names — if they break out — is worth considering.
Bitcoin Price Tumbles, Coinbase IPO
The Bitcoin price traded just at $56,000 Sunday afternoon, well off morning lows but down sharply from above $61,000 late Friday. Power outages in China’s Xinjiang province shut down a huge share of Bitcoin miners. Meanwhile, there is speculation that the Treasury Department may crack down on money laundering via Bitcoin and other cryptocurrencies.
Bitcoin hit a record $64,899 early Wednesday, just ahead of the Coinbase IPO’s debut. A big Bitcoin price drop would hit crypto plays such as Grayscale Bitcoin Trust (GBTC). It could also weigh on Square and Tesla stock.
It’s unclear how Bitcoin price fluctuations will affect COIN stock, at least in the short run. Coinbase (COIN) is a cryptocurrency exchange is highly profitable with booming growth. But investors shouldn’t jump into this new IPO right away.
Dow Jones Futures
Dow Jones futures will reopen at 6 p.m. ET, along with S&P 500 futures and Nasdaq 100 futures.
Coronavirus cases worldwide reached 141.88 million. Covid-19 deaths topped 3.02 million.
Coronavirus cases in the U.S. have hit 32.38 million, with deaths above 580,000.
New U.S. Covid cases are picking up modestly, but deaths continue to slide. Most seniors have been vaccinated, while overall immunizations continue to ramp up.
Dr. Anthony Fauci said he expects a decision to lift the halt in Johnson & Johnson Covid vaccinations by Friday, though it’s possible some age or gender-based restrictions may be added. The FDA and CDC last weekrecommend a pause in the one-shot vaccine after six women aged 18-48 got a very rare but serious blood clot condition, with one fatility.
But global new cases are right at prior highs, as infections surge in India, Brazil, Turkey, Argentina and Iran, with European cases still high. While the U.S. is on track to achieve herd immunity within a few months, vaccinations have barely started in much of the world.
Stock Market Rally
The stock market rally turned in solid weekly gains once again, with the Dow Jones and S&P 500 hitting fresh highs.
The Dow Jones Industrial Average rose 1.2% in last week’s stock market trading. The S&P 500 index climbed 1.4%. The Nasdaq composite advanced 1.1%, while the big-cap Nasdaq 100 rallied 1.45%. The small-cap Russell 2000 gained 1%.
The 10-year Treasury yield fell 9 basis points to 1.57%. The big decline came despite strong growth and inflation data. Bond traders apparently are not as worried about accelerating inflation. Booming economic growth and low interest rates is a recipe for broad-based market gains.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) climbed 0.9% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) rose 1.1%. The iShares Expanded Tech-Software Sector ETF (IGV) popped 2.9%. The VanEck Vectors Semiconductor ETF (SMH) declined 1.4%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) edged up 0.9% but pulled back from a 10-week line test on Wednesday. ARK Genomics ETF (ARKG) climbed 1.1%. Tesla is no. 1 holding for ARK Investments across its ETFs. Square stock also is a top five ARK Invest holding, while the ARKG ETF owns a fair stake in TXG stock. ARK has bought up significant COIN stock over various ETFs since Wednesday’s debut.
Growth Stocks With Handles
A handle is a good place to shake out weak holders. A proper handle needs to be flat to downward-sloping. It must be at least five days or one week long. And the midpoint of the handle should be above the middle of the base, limiting the overhead supply. The buy point is 10 cents above the top of the handle.
SE stock has a cup-with-handle base with a 258.70 buy point on a daily chart, according to MarketSmith analysis. On a weekly chart, there’s no handle, so the buy point would be 285.10. This is the first real base for SE stock in at least a year.
Square stock is working on a consolidation, nearing record highs. After rising for 10 straight sessions, SQ stock has pulled back in recent days. That could be healthy development.. On a daily chart, a proto handle still needs a couple of days to be proper. But on a weekly chart, SQ stock has a handle with a 278.23 buy point. On either a daily or weekly chart, the recent pullback came on light volume following some above-average volume up days.
Snap stock is working on a handle on a daily chart, but on a weekly chart it has a handle that’s just above the midpoint of the base. The buy point is 65.96. That possible buy point is just above the mid-March peak of 65.13, in what could be seen as a “W” in a double-bottom base. Investors also could view the current pattern as a cup base with 73.69 entry. Snap earnings are due Thursday night.
10X Genomics stock tried to break out on Wednesday past a 201.80 buy point, but like many growth plays reversed lower. On a daily chart, TXG stock might be forming a high handle with a 203.30 entry. Technically, 10X Genomics has a high handle on a weekly chart, because of the down week. But TXG stock’s “down week” was only off 0.3%.
Netflix stock has a handle on a weekly chart at 559.85. On a daily chart, NFLX stock is on track to have a handle after Tuesday, just in time for Netflix earnings after the close. Netflix is in a base going back to late January but really has been going sideways since last July. So its relative strength line has been trending lower over that time. Investors may want to see a powerful breakout before subscribing to Netflix stock. Even that’s no sure thing: NFLX stock gapped out of a base after Q4 earnings, but then quickly fell back.
Apple stock technically is three days into a handle, but an investor has to squint to see it. AAPL stock could use a good shakeout in its handle attempt, perhaps with a weekly decline. But until then Apple stock has a cup base with a 145.19 buy point.
Amazon stock is working on a handle, though there hasn’t been much of shakeout. However, the top of this would-be handle came in just shy of the Feb. 3 peak of 3,434, signaling the importance of that key level. For now, investors could treat 3,434.10 as a buy point, as either an early entry on a consolidation going back to early September, or as the top of a cup base within that larger consolidation.
As with NFLX stock, Amazon has been going sideways essentially since last July, giving a woeful RS line.
Tesla stock jumped Monday and Tuesday, moving above its 50-day and 10-week lines as well as its March highs. But share reversed lower on Wednesday, starting a possible handle. A handle could be valid on a daily chart after Tuesday, but a bigger shakeout that shows up on a weekly chart could be healthy. A key negative: Tesla stock’s 50-day line has been in decline for more than a month.
On Saturday night, a Tesla crashed near Houston, killing the two passengers. Neither was in the driver’s seat, making it extremely likely that the Tesla was using Autopilot or Full-Self Driving features.
Wait for COIN Stock IPO Base
Coinbase is a cryptocurrency exchange giant, minting real dollars for its digital asset trading. It’s getting a lot of attention and could have a bright future. But it’s not time to jump into COIN stock. It’s better to let a new stock find its footing and set up some sort of base. An IPO base can be very short, and are often highly volatile. But they offer a much-higher chance of success than buying an IPO in its debut or first few days, without any real chart pattern.
Coinbase opened Wednesday at 385, quickly ran up to 429.54, but then sold off. After that first hour of trading, COIN stock has only traded below 385. In the past two days, shares have never topped 350, closing Friday at 342. Anyone who bought COIN stock in the first few minutes is sitting on a big loss.
Market Rally Analysis
The stock market rally is now in a Power Trend, a positive signal. But the S&P 500 and Dow Jones are nearly 6% above their 50-day moving averages. That’s just shy of the 6% level suggesting they’re becoming extended. With Microsoft (MSFT), Google (GOOGL), Facebook (FB) and Nvidia (NVDA) hitting record highs and Apple, Amazon and Tesla rebounding, it’s not that surprising to see the major indexes separate from key levels.
But be on watch for a market pullback, even if it’s fairly modest. Along with ongoing market rally rotation, investors may want to be wary of adding significant new exposure in the very short term.
Other possible issues: Investor bullishness is relatively elevated, according to the Bulls vs. Bears reading and other psychological indicators. The rise in tech titans such as Apple is masking flat action in the Nasdaq advance/decline line.
Still, despite the ongoing sector shifts, a diverse group of stocks has taken advantage of the broad uptrend.
What To Do Now
We’ve gone from cyclicals to chips to big techs and back to cyclicals. Balanced leadership means you can avoid too much exposure to a sector just before a reversal. Keep a broad watchlist, not only for potential buys, but to help you be aware of which sectors are trending or lagging.
Go through your portfolio. You might consider taking partial profits into strength on some winning stocks. For stocks that are lagging or losing, how much patience do you give them?
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
YOU MAY ALSO LIKE: